Part 2 Contents:


The New Supply Complex

The vision of the new millennium, driven by these macro trends, is of a new 'Supply Complex'.The old role definitions of retailer, manufacturer and producer are going to disappear. In the future, roles will be defined by purpose and expertise - a process definition unencumbered by traditional boundaries and non- value- adding, redundant activities.Quick Response (QR), as the industry knows it today, will not exist. Speed, electronic linkage and strategic alliances will be naturally embedded in the business practices of the future. It will be impossible not to be quick!QR will no longer be a chain of sequential functions but will become an interlocking complex with the consumer as the focal point.The new model will be a complex marked by three strategic directives:

  • Core competency - companies will concentrate on differentiating competitive business expertise, will focus on their core business, and will virtually link with other companies without regard to ownership
  • Consumer focused - the consumer will be an active participant in all core business processes
  • Customisation - mass production or one size fits all will no longer exist. Even small, medium and large may disappear, as competitive forces and consumer demands move manufacturing to higher levels of service

Businesses will shift to focus on their core competencies, from trying to do it all to doing what they do best to world class standard, and creating strategic alliances with partners expert in the other core competencies. This is the definition of the virtual corporation or network.

"Companies will focus on what they consider their expertise to be and then forge strong alliances with leading service providers."
Bernie Feiwus, President & CEO,
Neiman Marcus Direct

Within the supply complex, the competencies that must be mastered by the players of the future are:

  • Design - the fundamental process that creates the image or product

  • Development - the function that gives the image or product life - the manufacturer

  • Distribution - the core process that gets the product to the consumer

  • Display - the retail function that presents the assortment of products for consumption

 
Design - Core Competency

The design process is the point of innovation. This is the owner of the 'image', from the high- fashion of Levi, Calvin Klein, or Armani, to the High Street names of The Gap, Next and Liz Claiborne of tomorrow. The key to control will be determined by who has the consumer franchise.

In the new world of design, the consumer and the developer, and possibly the retail displayer, will become 'co- designers' in a virtual network.

For the creative process to deliver efficiently what the consumer wants, the consumer must be integrated into the design cycle. It's true that what comes into fashion also goes out of fashion - often abruptly. Firms that have the flexibility to change designs and manufacture quickly will have a distinct advantage.

"Somehow the system needs to be reconfigured in a way that the system is a single entity - the virtual corporation. I believe that we are beginning to realise the strength is not in vertical integration. It's in virtual integration."
Gus Whalen, President & CEO,
The Warren Featherbone Co

Consumer databases will be developed to test new designs, colours and sizing via on- line, interactive, direct consumer response.

The fashion designer in the new supply complex will have the flexibility to alter designs based on direct consumer feedback.

 

Development - Manufacturing's Core Competency

Based on consumer- activated demand, the manufacturer must be flexible enough to produce products fast. All aspects of planning, production, and replenishment will cater to the consumer. This will be the new competitive advantage.

Production will continue to be sourced where costs are most favourable, but time to market will be embedded in new activity- based costing systems. In some cases, to facilitate customisation, finishing will be accomplished much closer to the ultimate consumer. Indeed, some garments may be assembled on the spot to provide the ultimate in fit and customisation.

 

Distribution - Logistics' Core Competency - and Automatic Consumer Replenishment

Distribution in the future will be dramatically different from today. Tomorrow's consumer will be searching for convenience, service and value in an environment where personal free time is an increasingly important commodity. These characteristics will be key in shaping the future look of retailing and, in particular, the distribution network that delivers products to consumers

"The value equation of moving merchandise from producer to consumer will dictate that the majority of it will actually never appear at the retail store for take- home by the consumer."
Dave Cole,
Chairman Kurt Salmon Associates

All information exchange from product development to distribution will be electronic. As direct marketing channels grow, communication will become a combination of voice and electronic, including audio and video. The product supply line from manufacturer to consumer will undergo dramatic change, both in the nature of who handles the product and in the modes of handling.

A decade ago, manufacturers shipped product to retailers in a warehouse- ready mode. Retailers, in turn, reprocessed merchandise to package and price it for sale in the retail store where consumers came to make purchases.

Today, in the era of floor- ready, manufacturers ship product that has already been packaged and prepared for immediate movement to the sales floor, thus bypassing some of the traditional retail processing channels and creating new alliances between retailers and manufacturers.

As we move to the new millennium, there will be a shift to consumer- ready manufacturing where the links between producer and consumer are even more direct than in past traditional selling channels. This expanded direct linkage will also see the birth of entirely new channels of product distribution.

Traditional retail outlets will be shopping theatres where many consumers will still come to make buying decisions. But with more customisation of purchases, it will not always be the channel by which the consumer takes delivery of that merchandise. It is possible to envisage over half of retail sales going straight from the manufacturer to the consumer's home without spending as much as a day in a retail warehouse or retail store.

Next day delivery standards, already common in the direct mail industry today, will evolve into same day delivery.

Continuity programmes for apparel and footwear products will lead to automatic replenishment of stock at the consumer level. In the past, only the retail buyer could replenish merchandise for sale to the consumer. Recently, more vendors are managing and automatically replenishing store merchandise inventories.

In the future, new relationships will develop directly between producers and consumers to automatically replenish a variety of items such as underwear, hosiery, dress shirts, active wear and other products on a weekly, monthly, quarterly or annual basis.

With the development of data warehouses, it is no longer such a stretch of the imagination for a producer to say to the customer, "Mrs. Johnson, you normally order 10 pairs of tights, style 485, size B, colour black, from us about every 3 months. Would you like us to send those to you, automatically, on a regularly scheduled basis? My records show that you prefer delivery on Tuesday nights at 8.15 p. m. Will that be acceptable?"

The growth of direct delivery of products will lead to an explosion in the requirement for new packaging materials and approaches for products shipped through the supply system.

New methods of packaging will develop to reduce the amount of waste. Re- use of packaging will become more common and pressures will grow to recycle those materials that are not re- usable.

Manufacturers and retailers will be faced with responsibilities for recycling the waste material produced from delivery of their products - and some of those responsibilities will be legislated. Delivery service companies will develop cooperative alliances with other businesses to ensure that the waste material they deliver is either taken away at the time of delivery or picked up later and recycled.

 

Display - Retailing's Core Competency

Retailing historically has had a consumer focus. After all, who's closer to the consumer in today's supply chain? In recent years, retailers have come to recognise how important it is to develop a 'relationship' with the consumer, and have invested millions in loyalty schemes in an attempt to achieve this. This need will only be augmented in the next millennium.

Customisation will ultimately be the key to differentiation. How retailers re- engineer to meet the needs of - to customise - their consumer base, will be the manner in which they will differentiate themselves from their competitors.

The core competency of retailing will be the role of 'displayer' - the point at which the consumer is exposed to assorted merchandise from many sources for the ultimate objective - a sale. Retailing, in its broadest sense, is the medium used to present goods in a store, catalogue, or on TV. But there will be more substantive changes in the macro world of retailing. In the new paradigm of the supply complex, the grossly antiquated definitions of mass merchant, department store, speciality store, etc., based on price points, will disappear.

All retailers will offer value, or they will not survive. We will increasingly think of retailing in two formats: 'in- store retailing' and 'non- store retailing'. In- store represents sales made in person through traditional channels; non- store represents all other forms of retailing where the merchandise is delivered to the consumer.

 

Non- store retailing

Over the next 10- 15 years, there will be a massive shift to non- store retailing of all types, from the traditional phone order (but this time on a wireless personal communicator, with interactive video screens, anytime, anywhere) to interactive, in- home shopping - or, anywhere shopping. Maybe even virtual shopping.

"In the future, we should focus more on the customer than the format… I also think it's going to be paramount going forward - for the retailer to really understand from a consumer's perspective - how important their time is."
Jim Oesterreicher,
President, J C Penney Stores and Catalog

In 1994, in the US, non- store retailing accounted for 15% of total GAF sales (General Merchandise, Apparel and Furniture). In 2010, non- store sales will account for over half of total sales - 55%. (See graph below).


Geographic differences and the late development of cable will mean a slower and less dramatic shift in Europe, but the trend will be the same.

What will cause this shift from in- store to non- store retailing? The consumer, aided by technology.

The consumer is the driver. The consumer wants speed, efficiency, access, choices, customisation and instant service. Technology is the enabler, sometimes the innovator, for this new world of retailing. It will also give consumers access to vast amounts of information and options. Technology will also give consumers control to activate demand when and where they choose. For retailers, how this mass of information will be edited for the consumer will become another new differentiator among competitors.

An important development in non- store retailing is home shopping. Home shopping will be interactive, on demand, with infinite channels and choices. Remote personal communicators will allow consumers to shop anywhere, anytime - customers will even be shopping in virtual stores where they will be able to try on colours, sizes, etc.

"The beauty of retailing is that it is a form of entertainment. It's not just a commercial exchange between two people. It should be an exciting shopping experience."
Tom Gould, Chairman & CEO,
Younkers Inc

 

In- store retailing

The retail store will become the theatre for communicating fashion ideas, fun and entertainment. Shopping will be fun again, as most replenishment of basics will be done in a non- store environment, and much of the merchandise purchased in- store will be delivered customised to consumer specifications.

The retailer will have less need for forward and backup stock. Turnover will be rapid, with most merchandise ordered only from the display unit.


Strategic Initiatives

How does this affect your business? What can suppliers and retailers do with this view of the future?

There are five initiatives to be a successful company of the future:

First, move quickly to 100% implementation of Quick Response, EDI, bar- coding, automatic vendor replenishment, floor- ready processing, cross- docking, receiving, etc. Push the envelope; get there fast. The benefits don't need to be proven any longer.

Second, focus on your core competency. Re- engineer your corporate strategy towards more decentralisation, more empowerment, more strategic partnering. Outsource functions or form strategic alliances with experts in these areas.

Third, build towards the concept of customisation, service, and specialisation for your specific business, as a manufacturer, retailer or service provider.

Fourth, set your strategy for Automatic Consumer Replenishment. This is the next generation of relationship marketing. What better way to bond with consumers than to communicate with them on a regular basis by selling them what they need with no effort on their part?

"If you know what it is today and can describe it, it isn't ten years away, it's going to happen sooner."
Jim Oesterreicher, President,
J C Penney Stores & Catalog.

Fifth, start thinking Consumer Response. Break out of the old paradigm. Ask yourself and your organisation how consumer responsive you are in every nook and cranny of the business? Never stop listening to your customer. Never stop exploring. Breakthrough ideas and innovation often go unrecognised until your competition beats you to them!

This is the dawn of a new era, a new way of doing things. The leaders, the companies that adopt these strategies first, will be the winners in the next millennium.